Meritage Homes' 2Q Earnings & Revs Beat

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Meritage Homes Corporation’s (MTH) second-quarter 2013 earnings per share of 74 cents beat the Zacks Consensus Estimate of 46 cents by 60.9%. The company achieved earnings beat on the back of better-than-expected increase in the top line.

Earnings per share also jumped 208.3% year over year, buoyed by robust rise in home closing revenues and gross margin expansion.

Total revenue in the second quarter of 2013 amounted to $450 million, up 59.5% year over year. The top-line growth rate exceeded management’s expectation of 40% to 45% growth for the quarter. Reported revenues beat the Zacks Consensus Estimate of $410 million by 9.8%. Meritage’s home closing revenues were $436.04 million, increasing 55% from the prior-year quarter and marking the seventh consecutive quarter of increase. Year-over-year growth in home closing revenues was attributable to a 27% increase in the number of homes closed and a 22% hike in average closing prices.  

Net sales orders climbed 21% year over year to 1,637 units during the quarter, reflecting sales order gains across all states. The value of net orders rose 49% to $573,392 million owing to a 23% hike in average prices. The company witnessed year-over-year increase in net order for the ninth consecutive quarter. The boom in net order bookings was attributed to a stabilizing recovery in the housing market. Despite increase in interest rates and prices of homes, affordability remains high as renting is still an expensive option luring buyers to new homes. Therefore, demand for homes continues to increase.

The company closed 1,321 homes in the second quarter of 2013, up 27%. The company started raising prices in most of its communities with market demand gaining momentum. The average selling price of the closings stood at $330 million, up 22%. The increase in prices was driven by a shift toward higher priced communities.

Meritage’s backlog totaled 2,283 homes as of Jun 30, 2013, up 42% from 1,611 homes as of Jun 30, 2012. The value of backlog grew 76% year over year to $806.3 million in the second quarter of 2013, owing to stronger demand and 24% increase in prices. The highest increase in backlog value was noted in Colorado (164%) followed by the Carolinas (127%) and Florida (99%).  

Reported home closing gross profit increased 80% year over year to $93.6 million,. The increase in gross profit was driven by higher sales prices. Consequently, the company’s adjusted home closing gross margin expanded 300 basis points from the prior-year quarter to 21.5% in the second quarter of 2013, driven by optimization of direct costs and price appreciation.  

Outlook  

Meritage believes that with the improvement in overall economy, job market and historically low mortgage rates, housing demand will continue to increase. The company raised its earnings per share expectation to the range of $2.65 to $2.85 for fiscal 2013, much higher than the prior guidance range of $2.20 to $2.45. The company still expects to end 2013 with 185 active communities.

We appreciate Meritage’s consistent earnings beat for the past five quarters. The company has been witnessing strong top-line growth and margin expansion, which promises steady growth momentum in the upcoming quarters.

Meritage Homes Corporation currently carries a Zacks Rank #3 (Hold).

Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. (DHI), Ryland Group Inc. (RYL) and PulteGroup, Inc. (PHM). All the three homebuilding companies carry a Zacks Rank #1 (Strong Buy).
 

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